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percent shareholder and ultimate decision maker) often served as
a 1-percent or less general partner of the partnership.
The two lease strip deals involve computer and photo
processing equipment subject to two existing end-user leases.
One end-user lease agreement, dated October 26, 1989 (hereinafter
for convenience referred to as the K-Mart end-user lease or K-
Mart lease), involved the lease of existing and after-acquired
photo processing equipment by Varilease Corp. (Varilease) to K-
Mart Corp. (K-Mart). On January 22, 1992, Computer Leasing, Inc.
(CLI), purchased the equipment subject to the K-Mart lease along
with Varilease’s rights and obligations under the lease. On May
18, 1994, additional equipment was added to the K-Mart end-user
lease. The other end-user lease agreement dated July 1, 1993
(hereinafter for convenience referred to as the Shared end-user
lease or Shared lease), involved the lease of computer equipment
by CLI to Shared Medical System Corp. (Shared).
Starting with the K-Mart and Shared end-user leases and
certain other equipment leases with three other end users, a
series of preconceived transactions was arranged with respect to
that equipment. The transactions were intended to create
residual lease periods beginning after the conclusion of the
existing end-user leases with K-Mart, Shared, and the other end
users. The transactions served as a foundation for two lease
strip deals under which the rental income streams from the
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